Tuesday, August 2, 2011

Almost Dividend Machine Target, symbol TGT

Image via Wikipedia Target comes and goes in my portfolio. TGT pays an ever increasing dividend and has earnings nearly four times the payout. Their debt to equity ratio is 1.00 which is the upper limit for a company in my income portfolio. Target is not quite a dividend machine because the dividend yield is only 2.42%. However, as readers of this blog know, I often use almost dividend machines that have call options to goose my income.

Target, as a stock, has another component that I like which is the stock moves seasonally with the retail market. Buy your retail stocks now and sell them in November. In November the market anticipates Christmas buying and many retailers' stock prices increase. Today I find Target to be a bargain at $49.50. I am willing to take the risk that TGT will continue to pay and even increase the dividend. I am also willing to take the risk that if I write a call of TGT, someone will take it from me. Next year, I will probably do this whole trade again like I have in previous years.

Here is the math for today's trade. Bought TGT at $49.50; sold an October call with a strike price of $55.00; I received a call premium of $.51 and I will receive the recently enhanced dividend of $.30 on September 10, 2011. If I hold TGT for an entire year and only write this one call, my income yield is the sum of the dividend $1.20 and the call premium of $.51 for a total of $1.71 which is a yield of 3.45%. If the call buyer takes my stock my return will be 12.70%. I calculate this as $55.00 plus the call premium of $.51 plus the dividend of $.30 for a total income of $55.81 divided by my cost basis of $49.52.

You see how income investing can be more interesting than you may think.

Follow by Email

Covered Call Opportunities

Square, symbol SQ, is my current favorite stock that is not a dividend machine. To turn it into an income investment, I use SQ's volatiity to buy when it dips and sell calls. See the table above. Note that this call is not included in the post published on 12/12/18 M*

About M*

Blog Archive

Search

Follow Me

Contact Me

Name

Email
*

Message
*

TheMoneyMadam's Story

My income investing success came from my experience managing my and other people's money since 1993. Successful income investing requires discipline. In this blog I provide specific investments based on my principles of conservative income investing. I hope to help the thousands or even millions of people who have saved and want to invest their nest eggs to retire with income that grows. M* MoneyMadam

Disclaimer

Information on this blog does not constitute investment advice. Review or mention of any stock, bond, or other investment shall not be considered a buy or sell recommendation. Everything in this blog is the opinion of the author and no warranties are expressed or implied. M*MoneyMadam.